News Articles

9 May 2008

The world-wide credit crunch will significantly dampen UK growth prospects and narrow the regional economic divide between the north and south, according to the latest Regional Planning report by Experian.

"Following an expansion of 3.0% last year, UK GDP growth is forecast to slow to 1.8% in 2008 and 1.5% in 2009," commented William Thomson of Experian. "The slowdown will bring the impressive run of job creation to a halt, with UK employment levels set to fall next year for the first time since 1992.

"Financial services jobs are particularly vulnerable as the fallout from the credit crunch continues. We expect net job losses in banking and insurance to total 40,000 over the period 2008-2011, with 19,000 of these in Greater London. The City of London will bear the brunt of the job losses in the capital, with firms expected to shed 10,000 jobs. Westminster and Tower Hamlets will also see lower financial services employment."

The south has enjoyed a clear performance advantage over the north in the past two years, growing 1% a year faster on average. However, this gap is set to narrow significantly over the next couple of years. The credit crunch and consumer slowdown will impact on prospects for financial and business services and distribution, hotels and catering, key sectors for London and the other southern regions.

Next year the north-south growth division will disappear for the first time since 2002, chiefly because of the abrupt London slowdown. Thereafter the south will pull ahead again, but the yawning gaps of the recent past will not be repeated.

The housing market has been slowing sharply in the past six months and this is expected to continue. "Tighter borrowing conditions and more expensive mortgages will bring about a decline in UK house prices of 7.6% over the next two years," commented William. "But the boom of early 2007 was uneven regionally and the correction will be more severe in some regions than others.

"The largest declines in house prices are expected to be in the West Midlands and the south west, with values falling by 10% by mid-2010. Both areas have seen demand significantly weaken in recent months. The south west is further handicapped by being one of the most expensive areas of the UK and by its reliance in recent years on second-home demand to underpin the market.

"The south east and east of England will see declines in excess of 5% over the next couple of years. Affordability is lowest in these areas, with house prices more than eight times income levels, and with banks tightening lending conditions this will result in falling prices.

"Winners and losers in the housing market do not fit a strict north-south pattern. Unlike the other regions in the south, prices in Greater London are expected to hold up. Relative to earnings, prices are less inflated in the capital than the rest of the south and housing shortages are severe. However, the capital is vulnerable to the risks of more widespread job losses and more restrictive credit conditions."